SA’s Financial Intelligence Centre feels weight of its own ability

In the 2017/18 financial year, information supplied by South Africa’s Financial Intelligence Centre (FIC) helped to shut down a multi-million rand drug ring operated by foreign nationals; shut down the local virtual currency account of a fraudster; shut down the activities of a syndicate that was illegally supplying food to Zama Zamas; shut down a brothel that exploited Thai women; and shut down a Ponzi scheme run by an individual marketing Africa’s first virtual currency and promising investors huge returns on their investments. In all cases, the individuals are being prosecuted.

The FIC did this by analysing the spending patterns, bank statements and business interests of the suspects, and working in conjunction with other crime prevention bodies like the Hawks, SAPS and the Asset Forfeiture Unit.

These details, among others, were disclosed in the FIC’s latest annual report, which received an unqualified audit from the attorney general, and which was recently released to parliament. “The report marks 15 years since the organisation was established as South Africa’s national centre for gathering and analysing financial data in order to produce financial intelligence reports,” says the director of the FIC, advocate Xolisile Khanyile.

The FIC collects information and analyses suspicious transactions reported by some 3 300 financial or non-financial institutions, including banks as well as gambling bodies, car dealerships, estate agents and lawyers. 

The unit, whose professional team numbers about 39 people supported by another 135 skilled workers, shot to prominence (and aroused the ire of some politicians in the security cluster) when its work cast a spotlight on financial transactions conducted by the Gupta family. It’s believed that a record of suspicious transactions reported to the FIC prompted the four major banks to close Gupta company Oakbay’s bank accounts between December 2015 and April 2016.

In October 2016, finance minister Pravin Gordhan initiated court proceedings to which he attached an FIC report detailing 72 suspicious transactions cumulatively worth R6.8 billion reported by various banks between December 2012 and June 2016.

In the 15 years since the FIC was established, demand for the financial intelligence reports it develops has grown. In 2003/4 it contributed to 161 criminal investigations, and in 2017/18 it contributed to 2 243. In addition, it referred 1 470 matters to domestic and foreign authorities for further investigation.

“We supported investigations involving a range of different types of crime during the reporting period,” says Khanyile. “Fraud was the most prevalent, followed by tax-related crime, narcotics, money laundering, and corruption.”

The FIC is doing a good job, says Cas Coovadia, chairman of the Banking Association of SA. “It’s worth noting that its ability to do so is limited by the quality of the information supplied to it by its reporting agencies. And this depends on what kinds of systems institutions have in place to pick up suspicious transactions.

“In 2014 the four major banks were fined by the Reserve Bank for Fica lapses,” he says. “But the banking systems that are in place now are robust and automatically flag risks.” In recent years the Sarb has also fined the likes of Investec, VBS Mutual, China Construction Bank and a variety of authorised forex dealers for Fica lapses.

All of this adds to the burden and cost of complying with the Financial Intelligence Centre Act (Fica). In the same vein, consumers are often frustrated by the amount of information they need to supply in order to complete what appear to be routine tasks.

However, South Africa is under pressure to comply with international regulations.

Implementing the new amendments to the FIC Act (Know Your Customer) was a key focus during the reporting period and will remain so in the next financial year. In addition, the upcoming assessment – by the International Monetary Fund, Financial Action Task Force and Eastern and Southern Africa Anti-Money Laundering Group – of South Africa’s anti-money laundering, counter-terror financing and proliferation of financing regime and systems, will require some focus in the coming year. 

“Our team is small and highly capable but growing recognition of our work and increasing responsibilities in terms of the amended FIC Act are putting additional strain on the organisation’s resources,” says Khanyile. “We continue to fulfil our mandate despite the mounting pressure on our human resources and budget, but a more sustainable solution is needed for the longer term.”